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065. Stock Market Growth Exceeds Profit Growth

Stock market capitalization represents the most reliable indication of the valuation of invested assets. That does not include other property, such as real estate or land holdings but offers a good insight into the most closely watched class of US wealth. (SOURCE: https://research.stlouisfed.org/fred2)

This asset class grew from $2 Trillion in 1985 to the current level of $20 Trillion, in increasingly cyclical pattern. The growth of the market has been about 1,000%

Meanwhile corporate profits - the source of the stock market value - have grown from $200 Billions in 1985 to the current levels of $1,400 Billions, The growth of profits has been about 700%.

CONCLUSION: Although a number of influences have propelled the growth of both market valuation and corporate profits, it is the increasing use of low cost deb that has financed the differences between the stock market and profits. Since 1985 investors have more than doubled the deployment of debt to finance an increasingly risk stock market.